Broken British Tax Breaks For Games

Urgh, this is no good. The announcement of tax breaks (as explained here) for the UK games industry, bruised and battered as it was by a torrent of studio closures in recent years, was an all too rare instance of George Osborne doing something to stimulate rather than malnourish the UK economy. And there was much rejoicing – until the European Commission decided it wanted to shoot the plans down.
The EU Commission claims that there “is no obvious market failure” in the UK games industry. Black Rock, Sony Liverpool/Psygnosis, BigBig, Monumental, Bright Light, Bizarre, Codemasters Guilford, THQ Warrington, Realtime Worlds and more beg to differ. As perhaps do EA-owned social games makers Playfish, which this week also faces redundancies and potentially even closure as a raft of its admittedly hateful Facebook games, including The Sims Social, are suddenly closed. Whatever we might think of the games these places made and of whose masts they chose to tether themselves too, if only they could have had the chance to try something else rather than face the axe.

While recent numbers do have it that the UK games industry is growing, two factors arguably affecting that are the assistance promised by tax breaks and that so many new, small studios were started by staff made redundant by some of the firms mentioned above. One thing we’re most certainly not over here is out of the woods. The idea of Europe ordering that tax breaks, so beneficial to small studios struggling to establish themselves, is not a pleasant one.

“The market for developing video games is dynamic and commercially promising,” said Joaquin Almunia, EU Commission VP. “It is not clear whether the taxpayer should be subsidising this activity. Such subsidies could even distort competition.” By the latter, he means that UK could wind up with an unfair advantage over other nations, and I suspect that’s the crux of the matter in the eyes of countries which don’t grant games companies the 25% tax relief due to be offered here. And, the commission fears, it could spark a “subsidy race between member states” competing for investment from big games firms.

From a governmental point of view, this isn’t about the effects on indies one way or another – it’s because every nation wants an Activision or EA setting up camp in their back yard, and all the expenditure and recruitment that would entail. And, indeed, anything that might keep the capricious, callous whims of bottom line-obsessed megacorps at bay in the event a game isn’t the big earner they’d hoped.

The commission wants to launch an investigation into the matter, and regardless of outcome one thing it will do is hold things up. Thanks, Europe. Theurope.

The basis for the commission’s dispute goes a little something like this. It’s unconvinced that:

Aid is necessary to stimulate the production of such video games.
Limiting expenditure for the tax relief to goods or services ‘used or consumed’ in the UK would not be discriminatory.
Offering this type of aid would not fuel a subsidy race between Member States.
The proposed cultural test ensures that the aid supports only games with cultural content without leading to undue distortions of competition.

Despite these concerns, it claims the fact this investigation has been announced will not “prejudice its outcome” and has offered “the UK and other interested parties the opportunity to comment.”

What next, then? UKIE, the association for UK interactive entertainment, are trying to gather evidence from the UK games industry to demonstrate how helpful tax relief really would be. Over on their Facebook page, they’re asking for devs to tell them about:

1) games that have been cancelled and that you believe would have happened if the tax credit had been in place
2) games you have made that had to be made “less British” in their look and feel, tone, or narrative in order to get a greenlight
3) What % of your work is currently work for hire and what % would you estimate it to be if the tax credit was in place?

If that’s relevant to you, get over there and throw your two pennies in.

You can read the full text of the European Commission’s announcement here.